Client Talking Points

EUROZONE

Got GDP Slowing? Yes! Inline with our #EuropeSlowing theme, Q2 preliminary GDP slowed across the Eurozone, to 0.3% vs 0.6% in the prior quarter. Specific country results: Germany (0.4% vs 0.7% in the prior quarter); France (0.0% vs 0.7%); and Italy (0.0% vs 0.3%). Our bearish bias on the Eurozone remains intact.

#CREDITCYCLE

Looking at corporate credit there is a large divergence between different issues. Despite corporate bankruptcies on a pace not seen since 2009, credit spreads have tightened meaningfully. High-yield energy spreads have been more than cut in half since February from +1600 to +718 this morning. Resource high-yield spreads have reverted nearly back to trade at the same spreads as high yield broadly since the U.S. dollar broke out in July of 2014. Corporate leverage broadly (median debt/ EBITDA) reached record highs this week as reported by S&P, so if you believe this ends well, you also have to believe the fed’s next ease will involve buying of corporate bonds and monetization of debt

#VOLATILITYASSYMETRY

Once again vol. is for sale at all-time highs. In the summer of 2014, we introduced our #volatilityassymetry theme at all-time lows in cross asset volatility. While a number of indices haven’t quite reached those level, the VIX is looking to test its YTD low from last week, trading at 11.59 this morning – still a handle off all-time lows. The MOVE Index is at a level not seen since December 2014 which has helped drive corporate spreads lower.

Asset Allocation

CASH US EQUITIES INTL EQUITIES COMMODITIES FIXED INCOME INTL CURRENCIES
8/11/16 61% 3% 3% 10% 14% 9%
8/12/16 61% 3% 3% 10% 14% 9%

Asset Allocation as a % of Max Preferred Exposure

CASH US EQUITIES INTL EQUITIES COMMODITIES FIXED INCOME INTL CURRENCIES
8/11/16 61% 9% 9% 30% 42% 27%
8/12/16 61% 9% 9% 30% 42% 27%
The maximum preferred exposure for cash is 100%. The maximum preferred exposure for each of the other assets classes is 33%.

Top Long Ideas

Company Ticker Sector Duration
GLD

See update on TLT/UUP.

TLT

Back to growth ... we’ll refrain from commenting on Friday’s headline non-farm payrolls number in isolation, and rather offer some perspective on the cyclical nature of the non-farm payroll data series (you’ve heard it before):

  • On a Y/Y rate of change basis, Non-Farm Payrolls peaked in February of 2015;
  • Once growth in this series peaks and rolls over, it doesn’t return and we move toward economic contraction on the margin. Read: Bullish for Long Bonds (TLT);

A print of +282K jobs was needed for July to avoid another Y/Y sequential deceleration in the series. NFP additions were +255K. While this beat expectations of +180K (which was cheered by just about every mainstream media outlet), the TREND in this series remains slow-moving, predictable, and most importantly past peak.

UUP

Our team’s macro process is both fundamental and top-down, and we get the top-down signals in real-time. The bottom-line is that both the CRB Commodities Index and crude oil have recently broken down from a quantitative risk management perspective. While this is a key factor contributing to our recent addition of the PowerShares DB US Dollar Index Bullish Fund (UUP), it also signals that TIP does not have as much upside as we thought. As Keith McCullough wrote to subscribers this week:

 

“Changing my mind on longer-term longs has happened infrequently this year, but it should happen. That’s how the game goes.”

Three for the Road

TWEET OF THE DAY

**NEW VIDEO Van Sciver: I’m Pretty Excited About The $CAT Short Call https://app.hedgeye.com/insights/53050-van-sciver-i-m-pretty-excited-about-the-cat-short-call … @KeithMcCullough

@Hedgeye

QUOTE OF THE DAY

"When nothing is sure, everything is possible."

-Margaret Drabble

STAT OF THE DAY

Ay 41 years old, Oksana Chusovitina is the oldest female gymnast in Olympic history. She is competing in her seventh Olympics for Uzbekistan.